A new low below 2,371.54 invalidated the hourly Elliott wave count and indicated a pullback has likely arrived.
Summary: A deeper pullback may have arrived. It may last about one to three months and may end either 2,368 – 2,353 or 2,282 – 2,234. A new low below 2,277.53 would indicate the lower target range should be used.
New updates to this analysis are in bold.
Last monthly and weekly charts are here. Last historic analysis video is here.
MAIN ELLIOTT WAVE COUNT
WEEKLY CHART
Click chart to enlarge.
Cycle wave V is an incomplete structure. Within cycle wave V, primary wave 3 may now be complete.
Primary wave 4 may not move into primary wave 1 price territory below 2,111.05.
Primary wave 2 was a flat correction lasting 47 days (not a Fibonacci number). Primary wave 4 may be expected to most likely be a zigzag, but it may also be a triangle if its structure exhibits alternation. If it is a zigzag, it may be more brief than primary wave 2, so a Fibonacci 21 sessions may be the initial expectation. If it is a triangle, then it may be a Fibonacci 34 or 55 sessions.
A new low below 2,277.53 would invalidate the daily alternate wave count below and provide confidence that the pullback is at primary degree.
DAILY CHART
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Intermediate wave (3) is shorter than intermediate wave (1). One of the core Elliott wave rules states a third wave may never be the shortest wave, so this limits intermediate wave (5) to no longer than equality in length with intermediate wave (3). If intermediate wave (5) is now over, then this rule is met.
Minor wave 3 has no Fibonacci ratio to minor wave 1. If minor wave 5 is now over, then it is 4.14 points longer than equality in length with minor wave 3. So far price remains within the blue Elliott channel. If price can break below support at the lower edge of this channel, then further confidence in a multi week pullback may be had.
Intermediate wave (5) may have ended in 27 days, just one longer than intermediate waves (3) and (4). This gives the wave count good proportions.
The proportion here between intermediate waves (2) and (4) is acceptable. There is alternation. Both are labelled W-X-Y, but double zigzags are quite different structures to double combinations.
The following correction for primary wave 4 should be a multi week pullback, and it may not move into primary wave 1 price territory below 2,111.05.
HOURLY CHART
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The last gap is now closed, so it is correctly named an exhaustion gap.
A new wave down at primary degree should begin with a five down on the hourly and daily chart levels. This is incomplete. During the first five down, no second wave correction may move beyond the start of its first wave above 2,400.98.
Watch the lower edge of the blue Elliott channel carefully tomorrow. It may offer some support. If price breaks below it, then look out for a throw back to find resistance at the lower edge of the channel. If price behaves like that, it would offer a good entry point to join a new short term downwards trend for aggressive traders.
Less aggressive traders may choose to patiently wait for this correction to end before entering long. The larger trend is still upwards and this is expected to be a counter trend movement.
Always remember my two Golden Rules:
1. Always use a stop.
2. Do not invest more than 1-5% of equity on any one trade.
ALTERNATE DAILY CHART
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What if recent strong upwards movement was the middle a third wave at three degrees? This is supported by a fairly bullish look for the classic technical analysis chart.
All subdivisions are seen in exactly the same way for both daily wave counts, only here the degree of labelling within intermediate wave (3) is moved down one degree.
This alternate also expects a correction, but for minor wave 4, that may not move into minor wave 1 price territory below 2,277.53. A new low below this point would confirm the correction could not be minor wave 4 and that would provide confidence it should be primary wave 4.
Minor wave 4 may last about 26 days if it is even in duration with minor waves 1, 2 and 3. That would give the wave count good proportions and the right look.
Minor wave 4 may end within the price territory of the fourth wave of one lesser degree about 2,368 to 2,353.
Both wave counts expect essentially the same direction next, so the hourly chart for this alternate would look the same with the exception of the degree of labelling.
TECHNICAL ANALYSIS
WEEKLY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
There are now nine green weekly candlesticks in a row. A larger correction may be expected soon.
Volume last week is stronger than the three weeks prior. There was good support last week for upwards movement.
On Balance Volume remains very bullish.
RSI is overbought, but in a bull market this can remain extreme for a reasonable period of time. If it begins to exhibit divergence with price at the weekly chart level, then a larger correction may be expected to begin. There is no divergence at this time.
This trend is not yet extreme.
DAILY CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Monday is a downwards day with a lower low and lower high. The balance of volume was down. An increase in volume supports downwards movement today.
On Balance Volume gives a bearish signal today: the purple trend line is breached. This line is tested only three times, not very long held, and has a reasonable slope, so it does not have strong technical significance. This is a weak bearish signal but should still be given some reasonable weight.
This chart today looks less immediately bullish. Expect a pullback to resolve extreme overbought conditions.
VOLATILITY – INVERTED VIX CHART
Click chart to enlarge. Chart courtesy of StockCharts.com.
Normally, volatility should decline as price moves higher and increase as price moves lower. This means that normally inverted VIX should move in the same direction as price.
Bearish divergence and bullish divergence spanning a few short days used to be a fairly reliable indicator of the next one or two days direction for price; normally, bearish divergence would be followed by one or two days of downwards movement and vice versa for bullish divergence.
However, what once worked does not necessarily have to continue to work. Markets and market conditions change. We have to be flexible and change with them.
Recent unusual, and sometimes very strong, single day divergence between price and inverted VIX is noted with arrows on the price chart. Members can see that this is not proving useful in predicting the next direction for price.
Divergence will be continued to be noted, particularly when it is strong, but at this time it will be given little weight in this analysis. If it proves to again begin to work fairly consistently, then it will again be given weight.
BREADTH – AD LINE
Click chart to enlarge. Chart courtesy of StockCharts.com.
The rise in price has support from a rise in market breadth. Lowry’s OCO AD line also shows new highs along with price. Normally, before the end of a bull market the OCO AD line and the regular AD line should show divergence with price for about 4-6 months. With no divergence, this market has support from breadth.
Short term bullish divergence noted in prior recent analysis has not been followed by upwards movement. There is now mid term bullish divergence between price and the AD line. Today the AD line made a new low beyond the prior low of the 17th of February, but price has not made a new low. This indicates weakness in price.
This divergence does not support the idea of a pullback right here and now. However, more weight will be given to the main technical analysis chart, which shows overbought and extreme conditions.
DOW THEORY
The DJIA, DJT, S&P500 and Nasdaq continue to make new all time highs. This confirms a bull market continues.
This analysis is published @ 08:41 p.m. EST.
It looks like a small triangle is unfolding, but I can’t fit that into the wave count….
So often what looks like a triangle turns out to be a combination or series of overlapping first and second waves.
The triangle could be wave B within a small zigzag.
Anyway… updated hourly chart for you all. Not much to see, support at the lower trend line holding. That needs to be broken for confidence in this wave count. When / if that line is broken then I’d expect to see momentum build.
Hi Lara;
If we have a triangle unfolding should we expect a possibly thrust up from it to complete a sub-min two? Or can we have a triangle begin a third wave down?
Just looked at that…. it could fit but I think this might fit better.
So yeah, a thrust up to complete minuette (ii) maybe, before the beginning of a third wave down at two small degrees has the power to break below support.
We have a thrust downward out of the triangle underway. If it does not take out the gap at 2363.64 on this move, we are going sharply higher short term. If we do, I am all in for the ride down…. 🙂
The banksters are putting up a helluva fight to hold onto 2370.00, and especially to try and keep that 2363.64 gap open. I wonder why??!!! 🙂
Remarkably, ES has STILL not taken out that number….incredible!!
Algos working overtime!!
This slow action seems to fit the Minor-4 on the alternate daily chart much more than the Primary-4 shown on the main daily chart. If so, the downward/sideways move should end very soon. Time will tell.
Minor 2 lasted 26 days. Minor 4 should be somewhat in proportion for the wave count to have the right look. So another few days would be too brief.
At least two weeks total, and more likely a month or more.
Probably not much to see today. I expect them to keep mucking around to keep the bears confused and then we get a plunge in futures with the first impulse completing intraday and not giving anyone time to get positioned before a deep second wave up. I’ll load the rest of my trades shortly after the close depending on what transpires the rest of the session. Cheerio!
Of course we could also be seeing an expanded flat (so what’s new) for a small degree second wave…is so, the gap gets filled the next move down…
Duelling market signals. On the one hand, we have clearly breached the curve of the parabola, a normally fatal event. On the other, we have that gap that remains stubbornly unfilled. Perhaps we get a move up to kiss the underside of the curve….?
DJI has already filled this morning’s gap gap. Bullish
I could be wrong about a “managed decline” but I do think that is what we are seeing. Ordinarily I would contend that the bad boys could not control the momentum of a third wave down but based on what I have seen in this crazy market, I would not bet on it..as long as that gap stays open, they are in control…
SVXY March 17 130 strike puts down to around 4.00 ask, and could go a bit lower; will add my second tranche as soon as SPX takes out 2363.64 and not one tick before. Yer just can’t trust you-know-who! 😉
I am still holding a bit of dry powder. Really amazing the banksters are still keeping the 2363.64 gap open. Either we get a better entry point tomorrow or we have to jump onto the runaway train. Have a great evening everybody!
The bsnksters are definitely baiting the bears… 😉
Feels that way…. maybe 4 is over for the 2353-2368 range Lara mentioned
Charles Nenner is one of the best in the business. I used to get his research a few years ago and I am considering re-subscribing to replace the subscription I had with EWI. He did not expect the S&P 500 to go over 2280.00 so was uncharacteristically off on that call. He has for several years though, been calling the fall of 2017 as the year that “the bottom drops out”. He thinks this last manic run higher has practically guaranteed it, and for me he added the magic words “particularly in a rising interest rate environment.” I really have to smile when I hear all the bullish talk about how high the indices are going to go. People are ignoring that we recently ended a 30 year bull run in bonds, and the period of rising rates will probably last as long. If this thing holds up until the fall, we are gong to have to have a very substantial correction beginning right now or we will essentially have the continuation of the parabolic rise, Parabolas don’t CORRECT, they COLLAPSE!
I am a bit concerned that the 2363.64 closing gap from last Tuesday was not filled. They are usuually summarily taken out on reversals at this degree so we could possibly have one more leg up to finish the current wave…..ES did take it out…
On closer inspection, ES did NOT take out 2363.64 and still has not. What I think we have here is a mini bear trap for the early bird bears. ES should have taken out 2364 for a third wave down. I suspect we will get one more upside pop- as perfect a setup as they come… 🙂
A bear trap may be just what the market needed to have a run on the early shorts pushing the index to new ATHs. NYMO closed below its BB yesterday at -40. With a down day it will do so again. This is a strong SPX buy signal that is relatively reliable. Daily close on NYMO is all that counts.
Yep! That open gap is a huge red flag. Third waves down usually close ’em and in a hurry. If you have to ask if it is a third wave….you know the drill… 🙂
Forgive my ignorance but what does nymo stand for? I know it is not the national youth movement organization;)
Amazing how they can control the market for there own purposes. There will come a day…..and they will have no mercy for changing the weights and balances for there own theviery.
Hey Dermot. Here is a good link to check out for this.
https://en.wikipedia.org/wiki/McClellan_oscillator
Rodney, thanks, I needed a review. Always good to go back and understand what an indicator really means. I just didn’t know what nymo stood for….NYSE moving oscillator…macd?
That’s what I’m thinking too Verne.
Verne
I have mentioned previously that its one last pop, however this isn’t taking into consideration the repatriation tax, I just see it higher. Summer sale in my opinion but heck what do I know
As long as we remain above 2370 anytrhing bullish is possible imo..
http://www.marketwatch.com/story/expect-wild-swings-in-the-stock-market-before-new-records-are-broken-2017-03-06
Have a read guys and let me know your thoughts
Have a great day, happy trading
I for one am waiting for vix too pop
Avi has been pretty accurate on his SPX calls. His expectation tbat the market is going to escape what’s coming this fall might bi in for some serious disappointment…
Instead of popping, VIX has recently been…well, just add an extra “O” 🙂 🙂 🙂
Oh good. Primary two was a flat so the chances of a Zig Zag for primary four are higher. From the current elevated levels of optimism, a sharp quick ZZ would be very much in keeping with what I personally would expect to unfold at this juncture. The move should be accompanied by a nice pop in volatility. The move back to 130 by SVXY was as nice a fat pitch over the center of the plate as you are ever likely to see. It has been awhile since I have seen two such setups offered so close together. We had another on February 15. I think the fifth wave up is going to complete faster than people expect….
The doc must be stopped! 🙂
AAARG,, beat out by my namesake
Aaaaand……the streak ends at four, and no more! Nice run Doc…. 🙂